The World Economy

Well. I want to be a dickhead and provide you the academic version of “ World Economy ”. (I have doubts you will not sleep before finishing to read the post)

But you can do it. Try to do it.

A simply way to manage the “world economy” notion is to start with some definitions.

The world economy can be defined as a worldwide activity between different countries. Being these countries’ economy strictly correlated, their own economy could affect positively or negatively the other countries’ economy.

The world economy is an economy based on economies of all the world countries’ national economy.

The world economy is the economy of global society in opposition to local economy that refers to national economies.

Summarizing, the world economy is the economy of the global society. The world economy should take into consideration the value of the production of all the world. Therefore for evaluating the world economy legal markets but also illegal markets and black market goods should be considered.

How to measure the world economy? There are different ways to measure the economy of nations such as: GDP, consumer spending, stock markets, exchange rates, interest rate, government debt, rate of inflation, unemployment, balance of trade and so on.

In any case the most common way to measure it is GDP. The GDP (Gross Domestic Product) is the market value of all the goods and services produced by labor and property. GDP refers to a country. The world economy is the aggregation of all the countries’ GDP of the world. Moreover in order to compare the world economy variation during years, the national GDP should be adjusted by inflation.

There are two different ways to compute GPD. They are:

the Current Currency exchange rate. The national GDP can be converted into one base currency according to current currency exchange rates in the international exchange market. The most used currency to convert is the American Dollar

the Purchasing Power Parity (PPP) exchange rate. The national GDP can be converted using the Purchasing Power Parity that is a theoretical exchange rate according to which an identical good in different countries, if expressed in the same currency, has the same price. Also in this case the American Dollars is the currency used to convert.

Using GDP as the mean for measuring it, in 2012, the world economy could be estimated in about 101,002 trillionsof American Dollars (GDP (PPP) – according to the World Bank).

Of sure the previous data, 101.002 trillions of American Dollars, is an approximation: changing the Institute it’s possible to obtain different estimates. According to the International Monetary Found the global GDP (using the PPP exchange rate) is about 98,714 trillions of American Dollars. According to the CIA World Fact-book the global GDP (using the PPP exchange rate) is about 100,003 trillions of American Dollars.

Measuring GDP using the Current Currency exchange rate, different results come from.

Moreover, missing information create distortions. Take into consideration illegal economies, black economies and so on. Of sure these economies are not considered in official statistics.

To sum up: it’s really difficult to quantify the world economy.

Well, are you sleeping? Me too. Let’s go on.

DEVELOPED, DEVELOPING AND LEAST DEVELOPED COUNTRIES

In order to better understand the world economy let’s classify the world in the following three categories:

developed countries;

developing countries;

least developed countries.

DEVELOPED COUNTRIES

While there is no one set definition of developed countries, the term refers to countries characterized by highly developed economies. Therefore the most used criterion for classifying developed countries are economic criterion such as GDP, per capita GDP, level of industrialization and standard of living. An interesting way for classifying countries as to be developed countries is looking at the economic sectors. Which is the economic situation of these countries? Developed countries are post-industrial economies where wealth is produced more in the third (the service sector) than the second sector (the industrial sector).

Developed countries are the world’s top economies.

Which countries are developed countries? As already stated, due to the lack of a unique definition, different criterion can be used. According to the criterion there exist several and different lists. Developed countries lists are provided by the United Nations Development Programme, CIA, FTSE Group (a British provider of stock market indices and other data services), OECD, by the International Monetary Fund and by the World Bank.

According to the United Nations Development Programme, developed countries are characterized by high level of human development. Therefore the classification is based on the Human Development Index. It’s an index that takes into consideration income, productivity but also educational opportunities and health conditions. In 2013 the list of developed countries (in the following picture, see “very high human developed countries”) included 47 countries. The list is the following:

According to CIA, in 2012, developed countries are “market-oriented economies of the mainly democratic nations in the Organization for Economic Cooperation and Development (OECD) plus Bermuda, Israel, South Africa, and the European mini-states. Generally these countries have a per capita GDP in excess of $15,000 although four OECD countries and South Africa have figures well under $15,000 and eight of the excluded OPEC countries have figures of more than $20,000” (the World Factbook-CIA). Developed countries are 34. They are:

The FTSE Group provides a financial market oriented definition of developed countries. Developed countries should have high income economies, detailed requirements with regard to market and regulatory environment, custody and settlement, dealing landscape, derivatives and size of market. In 2012 developed countries were 26:

As for developed countries, also for developing countries there are no one set definition and criterion. What is the economy of these countries? Developing countries are characterized by low income, low degree of industrialization and medium-low standard of living. They locate in the middle with respect to the world economic ranking. In any case among developing countries there are some of the fastest growing economy in the world.

Which countries are developed countries? The United States Development Programme, the International Monetary Fund and the World Bank provide different lists.

According to the United Nations Development Programme (UN) a country’s development is measured according to the following criterion:

GDP (gross domestic product);

life expectancy (health, nutrition, death age);

rate of education/literacy.

In order to capture all the previous variables, the UN uses an indicator: the Human Development Index (HDI). According to the results of the HDI, in 2012, the list of developing countries is composed by 47 high human development countries and by 47 medium human development countries.

The International Monetary Fund(IMF)classifies developing countries (as already stated)according to per capita income level, export diversification and degree of integration into the global financial system. As, the IMF classifies countries in only two groups, developed and developing countries, it’s obvious that developing countries are all countries not mentioned in the developed countries list. Therefore, in 2012, the list of developing countries is composed by 154 countries:

Least developed countries are characterized by poverty or extreme poverty. These countries can be classified as the worst economies in the world. Most lest developed countries are located in Africa and in Asia-Oceania plus Haiti (America).

African countries are characterized by extreme poverty, high rate of death (AIDS is widespread in most parts of Africa). From the political point of view, there is lack of political and social stability (civil/ethnic wars), corruption. Very often there are authoritarian governments.

Passing to the Asian-Oceania countries, which is the economic situation of these countries? They are characterized by fist sector economies based on mono-cultures. The most part of governments are quite stable and based on democracy.

According to the United Nations Development Programme (UN), least developed countries are characterized by poverty (tree-year average per capita Gross Domestic Product less than 1.036$ more or less), low levels of health, nutrition and education and economic instability.